WASHINGTON - State insurance commissioners are denouncing legislation that would give life and property-casualty insurers the option of federal regulation, contending that the bill would dismantle the current system and allow insurance companies to opt out of state oversight and policyholder protections.
On April 5, Senate co-sponsors Tim Johnson, D-S.D., and John Sununu, R-N.H., unveiled the National Insurance Act, the first legislation that would set up a so-called optional federal charter system.
The bill, which life and property-casualty insurers had called for, would set up a new federal insurance regulator in the Department of the Treasury that would pre-empt state regulation for companies that choose a federal charter.
Big companies like plan
About 100 of the 1,000 largest national life insurers would likely choose a federal charter if the legislation were enacted, American Council of Life Insurers president Frank Keating said at a news conference April 6 at the ACLI's headquarters here.
State officials and consumer groups quickly assailed the proposal on which the Senate Banking Committee is expected to hold hearings shortly.
"The nation's state insurance officials share significant concern that this bifurcated regulatory regime with redundant, overlapping responsibilities will result in policyholder confusion, market uncertainty and a host of other unintended consequences that will harm tax-paying individuals, families and businesses," Alessandro Iuppa, president of the Kansas City, Mo.-based National Association of Insurance Commissioners, said in a statement. He is superintendent of the Maine Bureau of Insurance in Augusta.
The NAIC pointed to the success it has had in getting 23 states to adopt a uniform interstate compact for life insurance and other investment-oriented insurance products. The association said it expects that 26 states will adopt the model legislation this year, which will allow it to begin putting the compact into effect.
The National Conference of Insurance Legislators in Troy, N.Y., issued a statement saying that the bill "would nullify critical state-initiated consumer safeguards, deny important consumer access and recourse in problem times, and ultimately impose the costs of a needless federal bureaucracy upon the public - all without consumer demand."
The Consumer Federation of America in Washington, the Independent Insurance Agents and Brokers of America Inc. in Alexandria, Va., which represents property-casualty agents, and the National Association of Mutual Insurance Companies in Indianapolis also lined up to oppose the bill on the same grounds.
But, Mr. Keating said, California, Florida and New York are unlikely to adopt the interstate compact, which would mean that insurance companies would continue to face different regulations in those major states. Banks change from state to federal charters, he said, without harming consumer protection.
"The regulatory process is not only expensive and duplicative, but enormously time-consuming," preventing life insurance companies from introducing products into the market in a timely fashion, which in turn makes them less competitive, Mr. Keating said.
The ACLI and the American Insurance Association in Washington, which represents property-casualty insurers, also stressed that the bill would set up a dual-regulatory system similar to the nation's banking regulatory system of federal and state charters.
The National Association of Insurance and Financial Advisors in Falls Church, Va., which represents insurance agent-advisers, issued a statement commending the senators, but it held off on supporting the bill.
The idea of federal regulation has been controversial among NAIFA members (InvestmentNews, March 8, 2004).
"NAIFA will continue its work to improve the state-based regulatory system but remains open to good-faith reform initiatives, state or federal, that will help agents better serve the public," chief executive David Woods said in a statement.
The IIABA said in a statement that federal regulation would lead to additional regulatory burdens on agents and brokers. It called for the enactment of the State Modernization and Regulatory Transparency Act, proposed by House Finance Committee Chairman Michael Oxley, R-Ohio.
That bill would set uniform standards that would have to be administered by the states.
But that bill "won't be enacted any time soon," Mr. Keating said. Neither will the Senate bill, the two co-sponsors acknowledged at a press conference where they announced the proposal.
Mr. Keating predicted it could take "several years" to get the bill enacted.
But getting the optional federal charter introduced as legislation has been an accomplishment for the ACLI and the AIA. Mr. Keating predicted that a similar life-only bill soon will be introduced in the House, but he declined to say who the sponsor would be.
Fees would fund plan
The federal regulatory structure would be funded by fees assessed on companies choosing a federal charter, but those companies would continue to pay state premium taxes, as well.
That is a major source of income in some states, and the insurance industry hopes that that will make the bill more palatable to the states. In 2003, the last year for which figures are available, life insurers paid about $4 billion in state premium taxes, according to ACLI figures.
The Senate legislation defines life insurance as including annuities and disability and long-term-care insurance.
The federal regulator also could delegate authority to a self-regulatory organization to handle things such as agent licensing and discipline, ACLI executive vice president and general counsel Gary Hughes said at the news conference.